Indonesian energy contracts in doubt

INDONESIA'S Constitutional Court has thrown the resource investment environment into further turmoil by declaring that the country's oil and gas licensing agency and regulator is unconstitutional.

The regulator, BPMigas, was disbanded as of Tuesday and the national government announced that the energy and mineral resources department would take over its role in administering 302 production-sharing contracts.

The chairman of the now-defunct agency, Raden Priyono, said negotiations with foreign companies, including a proposed $12 billion investment by BP for an expanded natural gas facility in West Papua, would now stall.

Contracts for licences worth $70 billion, which companies had signed with BPMigas, were also in doubt, he said, though other commentators played this down. BPMigas has no link to BP.

John Grant, the general manager of oil and gas explorer Mitra Energy, said his company had interests in five contract areas, of which one was still awaiting approval. ''There will be some confusion [as a result of this decision],'' he said.

''BPMigas' email has been turned off and it's not answering the phone, so we'll have to see what happens in the coming weeks.''

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BPMigas was set up by the newly democratic Indonesia in 2001 as an independent statutory authority to replace the regulation and licensing function of state-owned oil producer Pertamina, which had become hopelessly corrupted under the Suharto regime.

Despite being a government agency, BPMigas has run foul of nationalist sentiment, with the belief afoot that it was awarding too many lucrative contracts to foreign companies and cheating Indonesians out of income. The case was brought by 42 community and Islamic groups.

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Contracts governing 29 oil and gas projects are up for renewal between 2013 and 2017, and pressure is building on the Indonesian government to nationalise them all.

Indonesia produces 2.36 million barrels of oil per day and foreign companies including Chevron, Exxon Mobil, Total, ConocoPhillips and BP account for about 90 per cent of the country's production.

Companies have refused to comment as they digest the implications.

The Constitutional Court's judgment declared the agency unconstitutional because it was in violation of article 33 of the 1945 constitution, which guarantees that land, waters and natural resources should be ''under the power of the state''.

Chief Justice Mahfud MD - who reportedly has political ambitions to be the next Indonesian president - led the judgment.

Dien Syamsuddin, the chairman of Muhammadiyah, one of the world's largest Islamic organisations and a plaintiff in the case, said the judgment ''represents a people's victory''.

But Phil Shah, a consultant to the oil and gas industry, said the move was ''a disturbance''. While BPMigas had, at times, been a ''scourge'' for foreign investors, the judgment was ''another obstacle in the path overall''.